The Finnish Market Court has imposed its first fine for resale price maintenance for over a decade. The judgment follows a European trend of competition authorities pursuing and fining resale price maintenance. Moreover, the judgment signals the Market Court’s strict approach to such conduct: if an agreement constituting resale price maintenance is discovered, it is considered a violation of the competition rules in itself and will most likely attract a fine. Partners in distribution relationships should make sure that their cooperation does not involve elements that could constitute agreements on minimum resale prices.
On 11 August 2022, the Finnish Market Court (MC) imposed a fine for resale price maintenance (RPM). This is the first time for a little over a decade that the Finnish court specializing in competition matters and acting as the first instance when it comes to imposing fines for competition infringements has dealt with an allegation of RPM by the Finnish Competition and Consumer Authority (FCCA). RPM refers to any actions by which a supplier of goods, such as manufacturers, importers and wholesalers, and buyers of said goods, be they retailers or other distributors, agree upon a minimum price that the buyer has to comply with when selling the product. Similarly, a supplier persuading or forcing a buyer to comply with minimum prices counts as RPM. In the European Union, RPM is considered as a so-called ‘by object’ infringement of competition rules, meaning that once it is proven that an agreement on RPM exists, it is not necessary to display that any anticompetitive effects actually occurred.
What the Finnish Competition and Consumer Authority claimed?
In its combined decision imposing a cease-and-desist -order and proposing the MC to impose a fine in May 2020, the FCCA claimed that Isojoen Konehalli Oy (IKH) had engaged in RPM since February 2010 and continued to do so. IKH is an importer of hardware tools, spare parts and work clothing among other supplies, and distributes its products through independent retailers and is itself active at the retail level via its own outlet stores. In addition, from 2014 until the FCCA’s action, IKH operated an online retail store through which IKH and its retailers sold products supplied by IKH. According to the FCCA IKH had engaged in two conducts constituting RPM that formed a single infringement of Section 5 of the Finnish Competition Act (Competition Act) and Article 101 of the Treaty on the Functioning of the European Union (TFEU). First, the FCCA claimed that IKH had required its retailers to follow its recommended resale price (RRP) both in their brick and mortar stores as well as their own online stores. Second, the FCCA considered that agreements between IKH and its retailers by which the latter joined IKH’s online store constituted RPM agreements. According to the FCCA, this was because the online store divided all orders between IKH and the retailers that joined the online store based on the retailer’s location, and IKH and the retailer agreed that the prices of all products sold through IKH’s online store would adhere to IKH’s RRP. The FCCA claimed that the first part of the infringement lasted from February 2010 until February 2015, and the IKH online store part of the infringement lasted from October 2014 until the FCCA’s decision and proposal for fines. The FCCA requested that the MC would impose a fine of EUR 9 million to IKH.
The Market Court’s judgment – disagreement on the infringement’s scope
The MC upheld most of the FCCA’s claims. The MC considered that, during February 2010 until February 2015 IKH had an agreement or a concerted practice with four of its retailers according to which these retailers would adhere to IKH’s RRP in the retailers’ own online stores. According to the MC, the coordination was based on pressure applied by IKH on or IKH’s requests to said retailers and the retailers’ acquiescence. Moreover, based on an overall assessment of the evidence, the MC found that such conduct was IKH’s usual practice which it applied to all its retailers that sold products supplied by IKH in their own online stores. The MC, however, considered that the FCCA had presented insufficient proof that IKH had demanded its retailers to price their products according to IKH’s RRP in the retailers’ brick and mortar stores. Interestingly, the MC found that even though the FCCA had not presented any proof of contacts concerning RPM during the year 2012, the infringement had not ceased during this period. Such absence of contacts was explained, at least partly, by the fact that IKH had no complaints of its retailers’ pricing during this period. Therefore, the infringement continued on the basis that IKH had not shown that it had abandoned its RPM policy during this period.
The MC quite straightforwardly found that requiring retailers to follow a fixed price and, when necessary, applying pressure on retailers deviating from said price, was a ‘by object’ infringement. Consequently, it was not necessary for the FCCA to establish any negative effects on competition to conclude that such conduct breached the competition rules.
Similarly, the MC upheld most of the FCCA’s claims concerning IKH’s own online store. The MC found that the written agreements between IKH and retailers by which the retailers joined IKH’s online store constituted vertical agreements. Based on this, the MC considered that IKH’s online store in fact constituted IKH’s and the retailers’ collective online store which divided all orders and payments between IKH and the retailers that had joined IKH’s online store. The MC further stated that, by the agreements, IKH had dictated that the price for all sales through the online store would be IKH’s RRP, and that when an order was directed to a retailer, the retailer delivered a product it had bought from IKH for resale and received the customer’s payment for the delivery. The MC excluded from the scope of this part of the infringements all online store sales that IKH fulfilled, since this could not be considered to be a vertical agreement. According to the MC, these made up a majority of the online store’s deliveries. In addition, the MC found that applying IKH’s RRP in IKH’s and the retailers’ common online store had spillover effects on the retailers’ own online stores by reducing the retailers’ incentives to deviate from IKH’s RRP. Moreover, the MC found that the main purpose of the common online store was to control price competition between IKH and the retailers taking part in the online store. Based on this, the MC considered that the online store agreements were also ‘by object’ restrictions.
IKH had also raised arguments that the online store agreements should qualify for an efficiency exemption under Article 101(3) TFEU and its national counterpart Section 6 of the Competition Act since they resulted in benefits to IKH’s customers. The MC dismissed these claims relying mainly on the fact that the RPM clause was not necessary to establish a common online store between IKH and its retailers. In other words, the MC concluded that the restriction was not necessary for the benefits to materialize, and consequently did not venture to assess the other requirements for an efficiency defence.
The MC found that the two strings of the infringement claimed by the FCCA constituted a single infringement of Section 5 of the Competition Act and Article 101 TFEU. According to the MC, IKH’s conduct constituted price fixing, a serious infringement in itself, and covered the complete geographic area of Finland. However, the MC considered that due to the exclusion of RPM in the retailers’ brick and mortar stores and all orders in IKH’s online store that IKH fulfilled itself from the infringement’s scope, the established infringement was significantly narrower than what the FCCA had claimed. Therefore, even though the MC considered that the infringement also had some aspects that made it reprehensible, such as the pressure applied by IKH, the involvement of IKH’s highest directors and the premeditated nature of the infringement, the MC imposed a fine of EUR 1.75 million on IKH, a significantly smaller amount than what the FCCA had proposed.
The Finnish approach on RPM – a sign of the times
This case is the first time in a decade both for the FCCA to commence enforcement action in a vertical case as well as for the MC to impose a fine for such conduct. The previous Finnish vertical case that reached the MC was in 2011 and similarly concerned RPM. In that case, the MC imposed a fine of EUR 3 million on Iittala for including clauses on minimum retail prices on its distribution agreements. While during the first decade of the millennium the FCCA was rather active in the vertical sphere, for example proposing fines in two RPM cases and in one case concerning online sales restrictions in a selective distribution system, its enforcement for such cases during the 2010s was more or less dormant. The European Commission’s vertical enforcement activity was similarly on a temporary hiatus from after the Yamaha-case in 2003 until the end of the 2010s when, after finalizing its e-commerce sector inquiry in 2017, it issued fines in a slew of vertical cases for RPM and preventions of cross-border sales in the EU.
During the recent years, there has been a clear shift in the trend in the enforcement by European competition authorities, with authorities from Poland to Portugal displaying a renewed interest towards vertical competition infringements, and more specifically RPM. A tie that binds this enforcement action is the online sphere. In most of the cases, the competition authorities have found that the suppliers have restricted retailers’ online pricing or discounting, used the internet to track their retailers’ pricing, or, as in the FCCA’s case, both. With renewed enforcement experience and confidence from successful RPM cases, it seems unlikely that the European competition authorities would suddenly cease to pursue them with vigour.
The European Commission’s renewed vertical guidelines support the competition authorities’ approach. Despite some debate on the issue, the Commission decided to maintain its previous approach that RPM constitutes a hard-core restriction of the competition rules, with the clarification that such agreements are usually restrictions of competition by their object and consequently almost always fall foul of the competition rules. The new Guidelines do underline that RPM may qualify for an individual exemption under Article 101(3) TFEU. When it comes to assessing whether an RPM agreement may fulfil the conditions of that Article, however, the Guidelines more or less only repeat the lessons of the old guidelines. The only new guidance for how RPM might fulfil the conditions of Article 101(3) TFEU concerns minimum advertised prices, which the Guidelines consider an indirect means of RPM.
The FCCA’s proposal for fines and the MC’s judgment follow this pan-European trend. When coming out with its proposal, the FCCA underlined that RPM constitutes a serious infringement and results in higher prices for consumers and published a blog post dedicated to RPM. When the judgment came out, it repeated the message and added that online distribution is an effective means of price competition and thus worthy of being protected. By straightforwardly concluding that RPM restricts competition by object and stating that it is not likely to be necessary for creating efficiencies, the MC’s judgment reflects a similar strict treatment of RPM. Receiving confirmation on its strict approach on RPM, the FCCA will most likely pursue similar cases if it only is able to uncover them.
A Finnish trend of the judgment is the MC imposing a far lower fine than what the FCCA proposed. During the last ten years, the FCCA has seen its penalties slashed in the courts almost inevitably due to the courts finding that the FCCA has failed to display some elements of its allegations, resulting in considerable differences between the fines proposed and imposed. The IKH case is a prime example of this, since even though the MC upheld most of the FCCA’s findings, a reduced scope of the infringement resulted in the MC slashing the FCCA’s proposal by 80 % without much other reasoning. Both the FCCA and the courts have enjoyed a considerable leeway in their assessment of the fine since there have been no rules in the Competition Act as to exact calculation methods for a fine. Last year, while transposing the ECN+ Directive to its national legislation, the Finnish legislator introduced a detailed method for the calculation of a fine that closely resembles the European Commission’s fining guidelines. The method is, however, only binding on the FCCA, so the MC and the Supreme Administrative Court retain almost all their discretion concerning the size of the fine. Consequently, it remains to be seen whether the FCCA and the Finnish courts continue to disagree on the size of the fines for competition infringements.
The Finnish and European enforcement trend underlines that parties in a distribution relationship should be on the lookout for signs of joint understandings concerning minimum resale prices. Moreover, when establishing a common online store or joining a supplier’s pre-existing one, the parties should be careful that such arrangements do not result in fixed resale prices for the products sold through the store. A careful competition analysis before engaging in any joint conduct is always the easiest way to ensure compliance, and, even though the eventual fine could be slashed, the fiscally responsible option.